Region’s ride-hailing service awaits new entrants

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Aden - Yasmin Abdel Azim - At the start of 2019, the Middle East witnessed the largest digital-based acquisition with Uber buying Careem, in a deal that valued Careem at $3.1 billion. It was a vindication of the potential of this region within the global digital start-up universe.

While it was good for the overall ecosystem, it created an imbalance in the sense that mobility services effectively became a one-player market. The supply landscape was not impacted unfavourably as most regional markets seemed to have sufficient availability of cabs. However, the deep discounts that these mobility players doled out to attract customers have been quietly discontinued.

Interested parties

Market dynamics dictate that there could be a new player entering the Middle East market. The anticipation of a new player’s entry has been building up over the last few months. There are multiple international players such as Ola Cabs, Grab, Gojek and Didi Chuxing who are potentially looking at this region. These are all companies that are market leaders in their respective countries.

* Ola Cabs started its operations in India where is competes aggressively with Uber. It has been expanding into other markets such as Australia, New Zealand and the UK. Given the high Indian population in UAE, they can leverage brand recall to enter this market and then into the wider region. Cure.fit, a health fitness leader in India, and Rebel Foods, a virtual kitchen operator in India, had used similar strategies to enter the Middle East this year.

* Gojek/Grab are the leaders in online mobility in Southeast Asia. Uber sold its operations to Grab and exited the market. Both these players are well funded with deep pockets. The biggest differentiator they bring is their hands-on experience in integrating multiple functionalities into a seamless experience of a “super-app”. They can create value by applying their experience in the Middle East.

* Didi Chuxing is the Chinese online mobility leader to whom Uber sold its China operations. It has already entered Latin America and competing with Uber for market share there. They had entered into a partnership with Mohammad Alabbar this year — this could be an interesting partnership to look out for as it combines the deep functional expertise of Didi Chuxing with the deep local knowledge and ecosystem within Alabbar’s multiple businesses.

While multiple mobility players are looking to enter the market, risks remain. The Mena market is fragmented in multiple jurisdictions and there is a risk that it would become even more so if different players enter different jurisdictions and are not able to scale up. Also, a pure mobility driven marketplace requires significant cash to scale up and has a long path to profitability — something that the big investors in the mobility space such as Softbank would be wary about.

The focus on profitability, limited availability of capital, and underperformance of mobility IPOs (Uber and Lyft) could deter a new player from entering the market. In such a scenario, while customers might have to settle for fewer choices and lower discounts; the upside would be that online mobility in the Middle East could become among the first regions in the world to chart an easier path to profitability.

Sandeep Ganediwalla is Managing Partner at RedSeer Consulting, Middle East.

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